New Jersey Resources (NJR): A Hidden Gem in the Utility Sector with Defensive Growth

In an era of market volatility, investors are increasingly drawn to companies offering stable cash flows and defensive characteristics. New Jersey Resources (NYSE: NJR) stands out as a compelling opportunity, blending the safety of a regulated utility with growth catalysts in infrastructure and renewable energy. With a robust dividend history, a low P/E ratio, and a strategic shift toward renewable natural gas (RNG), NJR presents a rare blend of income appeal and long-term growth potential. Here's why it deserves a closer look.

The Regulated Utility Moat: Stability in Volatile Markets

NJR's core business lies in its regulated natural gas distribution through New Jersey Natural Gas (NJNG), serving over 540,000 customers. Regulated utilities like NJNG are inherently defensive, as their revenues are tied to cost-based rate structures that shield them from commodity price swings. This model ensures predictable cash flows, even during economic downturns.

The company's regulated operations are further bolstered by its midstream natural gas assets, such as the PennEast Pipeline (though delayed, it highlights NJR's strategic focus on infrastructure expansion). These projects are typically backed by long-term contracts, reducing execution risk and guaranteeing steady returns.

Growth Catalysts: Infrastructure and Renewable Natural Gas

While regulated operations provide stability, NJR is also positioning itself for future growth through RNG initiatives and infrastructure upgrades. RNG, derived from organic waste, aligns with decarbonization goals and offers premium pricing compared to conventional natural gas. NJR's NJ RNG subsidiary aims to supply 100% RNG to customers by 2030, a move that could open new revenue streams and strengthen its ESG profile.

Additionally, NJR's recent divestiture of its residential solar business (Sunlight Advantage) to focus on core strengths has streamlined operations. The proceeds from such moves, along with capital expenditure plans for grid modernization, signal a disciplined approach to allocating capital toward high-return projects.

Valuation: Undervalued Despite Strong Fundamentals

NJR's current P/E ratio of 14.9x (TTM) lags behind its peers like UGI (14.6x) and Spire Inc. (17.5x), despite its superior balance sheet and earnings visibility. This compression appears unwarranted given NJR's track record of 29 consecutive years of dividend increases and a 55-year streak of uninterrupted payouts.

With a dividend yield of 4.05% (vs. the 10-year average of 3.22%), NJR offers income investors a compelling entry point. Its forward yield of 3.69% (as of April 2025) still ranks competitively against peers like Atmos Energy (2.25%), while its payout ratio of ~60% (based on 2025 EPS guidance of $3.15–3.30) leaves room for further hikes.

Defensive Appeal: Utilities as Economic Ballast

The utility sector's defensive nature is underscored by its essential service status. During recessions, demand for heating, cooling, and power remains inelastic, insulating utilities like NJR from broad economic slumps. This reliability makes NJR a “buy and hold” candidate for portfolios seeking downside protection.

Investment Thesis: A Rare Blend of Income and Growth

1. Income Investors: NJR's 4.05% yield and rock-solid dividend history make it a top-tier option for those prioritizing steady returns.
2. Growth Investors: Expansion into RNG and midstream infrastructure positions NJR to capitalize on energy transition trends, offering multi-year growth runway.
3. Value Investors: At 14.9x earnings, NJR trades at a discount to its peers despite stronger fundamentals, suggesting upward revaluation potential.

Risks and Considerations

• Regulatory Risks: Rate approvals for NJNG and pipeline projects depend on state regulators, though NJR's long-standing relationships mitigate this.
• Project Delays: The PennEast Pipeline's delayed timeline has been a headwind, but NJR's focus on RNG and grid upgrades diversifies risk.

Conclusion: NJR as a Portfolio Staple

New Jersey Resources offers a compelling mix of defensive stability, dividend reliability, and strategic growth in a sector primed to outperform during market uncertainty. With a P/E ratio undervalued relative to peers and a dividend yield poised to attract income seekers, NJR is a must-consider holding for investors seeking both safety and upside.

For those focused on the long game, NJR's transition to RNG and infrastructure modernization could position it as a leader in the evolving energy landscape. Whether the market is climbing or retreating, NJR's moat-like fundamentals and undervaluation make it a standout pick in today's utility space.

Investment recommendation: Consider initiating a position in NJR for a diversified portfolio, with a target price of $54–56 (based on 2025 EPS guidance and peer multiples).